European Union:
COVID-19: State Aid Available Now!

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European Commission approves first State aid measure in
relation to the COVID-19 outbreak and announces a flexible
application of State aid rules to stabilize the economy

Probably everyone would agree that the COVID-19 outbreak
qualifies as an exceptional occurrence, or as an extraordinary,
unforeseeable event. From a European law perspective, this
qualification has a direct impact on many businesses. Due to the
severe economic impact of the pandemic, EU State aid law will play
an important role in the European response to the crisis. Already
now we can predict that the situation will be comparable with the
financial crisis in 2007/2008 where the flexible application of
State aid rules was a political instrument of high importance.

It is in this context that the European Commission on 12 March
approved the first national aid scheme notified by Denmark to
compensate organisers for the damage suffered due to the
cancellation of large events with more than 1,000 participants.
Denmark set aside DKK 91 million (€12 million) intended to
help operators with the losses suffered as a consequence of the
cancellations or postponement of events, e.g. for tickets that were
already sold.

The Commission had to approve this aid since, in principle, all
State aid measures are illegal unless they have been notified to
and authorised by the Commission. The notable exceptions are
support measures that are de minimis or fall under a block
exemption regulation or under an approved State aid scheme.
Additional national schemes will be notified to the Commission in
the next days as governments in the Member States are working with
full speed on responding to the crisis. For instance, Germany
announced a “protective shield” for the economy on 13
March that falls partially under existing and approved State aid
schemes, and of new schemes that will be notified to the EC.
Similarly, the French government announced on 12 March a number of
measures aimed at supporting French companies during the crisis,
including the possibility to delay tax obligations for all
companies unconditionally and State reimbursement of all short-time
working costs. While the review of State aid notifications normally
can take several weeks or months, in this first “coronavirus
State aid” case the Commission approved the aid within 24
hours. The Commission has put a hotline in operation that is
accessible 24/7 for the Member States to discuss State aid
questions, including aid for individual companies that are
particularly affected such as airlines.

As State aid is a fairly broad concept there will be many more
cases in the coming months. State aid law does not only apply to
direct subsidies but also to indirect financial measures, e.g.
waivers of public debts or the non-enforcement of obligations
(e.g., to pay taxes and other charges). In fact, such measures
account for a large portion of State aid measures and the
Commission will have to review a variety of political responses to
the pandemic.

There are different legal benchmarks that will apply. Article
107(2)(b) of the Treaty on the Functioning of the European Union
(TFEU) will be important for COVID-19 schemes, such as the Danish
example, that apply to specific companies or specific sectors for
the damages directly caused by exceptional occurrences. Since the
Commission decision concluded that the COVID-19 outbreak qualifies
as an exceptional occurrence, it can be expected that many Member
States will rely on this definition. This means that State
interventions to compensate for the damages that are directly
linked to the outbreak and proportionate are deemed justified.

However, the establishment of a direct link is not always as
easy as for cancelled events. What about businesses that are
affected by the downturn of the economy as a whole? For major parts
of the business, rescue and restructuring aid according to article
107(3)(c) TFEU will be the instrument of choice as it was during
the financial crisis 2008/2009. This provision enables Member
States to help companies cope with liquidity shortages and needing
urgent rescue aid. In addition, the Commission has already
indicated that it views the economic situation currently faced by
Italy as “a serious disturbance to the economy” of a
Member State which allows aid under article 107(3)(b) TFEU.
Commission Vice-President Vestager indicated that other Member
States could fall into this category, as well. Therefore, the
Commission is now preparing under this provision a temporary
framework that will be similar to what has been used during the
financial crisis.

In recent years, State aid law has been discussed in the public
often in the context of its application to tax schemes and profit
allocation questions. Now, it will be used again to flexibly
respond to a serious economic crisis. The Commission and the Member
States will benefit from the experiences during the financial
crisis and President Ursula von der Leyen has announced today that
the Commission will handle State aid law with “maximum
flexibility”. In order to help the European economy, the
Commission will also support particularly affected sectors such as
tourism, transport, or hotels and restaurants. Other Commission
measures are targeting urgent liquidity needs of SMEs and liquidity
in the banking sector.

Companies affected directly or indirectly by the COVID-19
outbreak should take the following steps:

Monitor whether your business falls
into the scope of any aid schemes implemented by the EU Member
State. If it does, assess your eligibility, including those of your
subsidiaries and affiliates in other jurisdictions.

Make sure to think of State aid law
not only for direct financial grants but also any other support
measures directly or indirectly attributable to an EU Member State
and feel free to contact us, should you have any questions relating
to notification requirements since missing notification
requirements may trigger an obligation to return the aid.

Work with your trade associations to
discuss your industry’s positioning vis-à-vis
governments, considering aid schemes for the same industry in the
other Member States, and aid schemes for other industries in your
Member States to avoid unfair advantages for competitors.

Stay on the right side of competition
law when teaming up with other industry players or working in trade
associations. Do not disclose confidential information that could
raise competition law issues.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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